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Active, diversified investing still a sound approach

Jim Rothenberg
Portfolio manager
Based in:
Los Angeles
Investment experience:

KEVIN CLIFFORD: It’s been interesting to all of us at American Funds to pay attention to the amount of money in our industry moving to ETFs and index funds. You have over four decades of investment experience. Your thoughts on that phenomenon today?

JIM ROTHENBERG: Well, I look at the period and the problems created in 2008-09, and I listen to a lot of financial intermediaries, in essence, saying to their clientele that “the way we’re going to avoid what happened to you is we’re going to give you a portfolio of ETFs and/or passive investments, and we’re going to get it all done with asset allocation.”

And my own experience is that asset allocation is as fraught as stock-picking. It’s not easy. Most of the time, people don’t get it right for very long, and people tend to trend-follow. So asset allocation tends to follow what has done well, not anticipate and move into the things that have done poorly.

And that’s always been backwards from my point of view. So what I look at is asset allocation: you may or may not get it right. And passive always has you pointing in the direction of what’s just done well. Two things, I think, [that] aren't the way people should really focus their investing.

So instead, what we try to encourage people to do is buy good managers who, over time, have shown [through] track records that they can outperform — that doesn’t mean every year will be positive — and really diversify your exposure so that you’re not counting on being able to swing into this and then swing out of it to something else at the right times, because I don’t think that’s going to work. And if you do buy good managers and hold it over long periods of time — and you can move on the margin your asset allocations — I think that gives you the best opportunity to achieve your goals as an individual investor.

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